财务会计英文版课后习题答案Ch13

CHAPTER 13 DISCUSSION QUESTIONS

1.The main purpose of a statement of cash

flows is to provide information about the cash receipts and cash payments of an enti-

ty during a period of time. The statement of cash flows also explains the changes in the balance sheet accounts and the cash effects of the accrual-basis amounts reported in the income statement. In addition to operating activities, it also provides information about an entity’s investing and f inancing activities.

This information should assist investors and creditors in assessing an entity’s ability to generate positive future cash flows.

2.Cash equivalents are short-term, highly liq-

uid investments that can be converted easily and quickly to cash. Examples include U.S.

Treasury bills, money market funds, and commercial paper. Cash equivalents are to be included as cash (i.e., added to cash) on

a statement of cash flows.

3.Cash flows from operating activities include

those items that enter into the determination of net income. Examples are cash receipts from the sale of goods or services and from interest, and cash payments for inventory, wages, taxes, interest, etc.

Cash flows from investing activities result from transactions and events involving the purchase or sale of securities (other than trading securities), property, plant, and equipment, and other assets not generally held for resale, and the making and collect-

ing of loans. Examples include the proceeds from the sale of equipment, the purchase of

a building, the sale of a business segment,

the collection of the principal amount on a loan to another entity, and the purchase of another entity’s equity secur ities (not held as trading securities).

Cash flows from financing activities result from transactions and events whereby resources are obtained from or paid to own-

ers (equity financing) and creditors (debt fi-

nancing). Examples include cash received from the sale (issuance) of stock, cash received from a bank loan or by issuing bonds, dividend payments to stockholders,

or cash used to repurchas e an entity’s own

stock (treasury stock).

4.Significant noncash investing and financing

transactions are to be reported separately in

a schedule below the statement of cash

flows or in the notes to the financial state-

ments. Because they do not involve cash,

they should not be reported in the body of

the statement itself.

5.The process of converting from accrual rev-

enues to cash receipts involves adjusting the

beginning and ending receivable balances.

We use Sales Revenue and

Accounts Receivable to illustrate the process.

Sales revenue ................................ $100,000

+ Beginning accounts receivable ... 50,000

– Ending accounts receivable ........ (40,000)

$110,000 Alternatively, the decrease in the accounts

receivable balance could be added to sales

revenue to derive the $110,000 cash

received from customers.

6.By analyzing the income statement and

comparative balance sheets, the following

six-step process can be used to prepare a

statement of cash flows.

https://www.360docs.net/doc/a418004859.html,pute the change in cash and cash-

equivalent accounts for the period of the

statement (month, year, etc.). This is the

amount that will reconcile the beginning

and ending cash balances.

2.Convert the income statement from an

accrual-basis to a cash-basis summary

of operations by (a) eliminating any

expenses that do not involve cash (e.g.,

depreciation), (b) eliminating the effects

of nonoperating activity items (e.g.,

gains or losses from the sale of long-

term assets not held for resale), and (c)

analyzing all noncash current operating

accounts to report revenues and

expenses on a cash basis.

3.Analyze long-term assets to identify the

cash flow effects from investing activities.

501

502Chapter 13

4.Analyze long-term debt and stockhold-

ers’ equity accounts to determine the

cash flow effects from financing activi-

ties.

5.Prepare a formal statement of cash

flows by classifying all cash inflows and

outflows according to operating, invest-

ing, and financing activities. The net

cash flows for the period should be

equal to the amount computed in step 1.

The net cash flows for the period are

added to the beginning cash balance to

equal the ending cash balance.

6.Report any significant noncash investing

or financial transactions in a narrative

explanation or in a separate schedule to

the statement of cash flows.

7.The net cash flows provided by (used in)

operating activities can be calculated by either the direct or the indirect method. The direct method reports all operating cash receipts and payments. The difference is the net cash flows from operations. The indirect method reconciles net income, as reported on the income statement, with net cash flows from operations, as calculated on the cash flows statement. Thus, with the indirect method, accrual net income is converted to

a cash basis on the statement itself.

8.Depreciation and similar noncash items

should not be reported on a statement of

cash flows. The indirect method starts with

net income. Because these items have been

included in net income, they must be added

to or subtracted from net income. With the

direct method, they are simply ignored.

9.Any significant noncash transactions (e.g.,

the purchase of a building or the retirement

of long-term debt by issuing stock) should be

reported in a narrative in the notes to the fi-

nancial statements or in a separate schedule

below the statement of cash flows. Also, if

the direct method is used to report cash

flows from operations, a note or schedule

must be included that reconciles net income

to net cash flows from operations. If the indi-

rect method is used, disclosure must be

made of the amounts of cash paid for inter-

est and income taxes.

10.Investors and creditors might use a state-

ment of cash flows to better assess the

amounts, timing, and uncertainties of future

cash flows. This knowledge can help them to

notice a company’s shifts in operating,

investing, and financing policies. It provides

answers to specific questions, such as: Why

weren’t div idend payments larger? How was

a new building financed? Why is the compa-

ny short on cash when earnings have

increased?

Chapter 13 503

PRACTICE EXERCISES

PE 13–1 (LO2) Categories of Cash Inflows and Outflows

The correct answer is A. Answers B, C, and D are the main categories of the statement of cash flows. Those activities that might be classified as ―earning a c-tivities‖ are p resented mainly in the operating activities section of the statement of cash flows.

PE 13–2 (LO2) Identifying Operating Activities

The correct answer is B.

a. This is an example of a financing activity.

b. This is an example of an operating activity.

c. This is an example of an investing activity.

d. This is an example of a financing activity.

PE 13–3 (LO2) Identifying Investing Activities

The correct answer is D.

a. This is an example of an operating activity.

b. This is an example of a financing activity.

c. This is an example of an operating activity.

d. This is an example of an investing activity.

PE 13–4 (LO2) Identifying Financing Activities

The correct answer is B.

a. This is an example of an investing activity.

b. This is an example of a financing activity.

c. This is an example of an operating activity.

d. This is an example of an investing activity.

504Chapter 13 PE 13–5 (LO3) Computing Net Change in Cash for the Period

The ending cash balance is $243, as shown below:

Cash provided by (used in):

Operating activities ............................................................................ $ 3,460 Investing activities ............................................................................. (3,730) Financing activities . (298)

Net increase in cash and cash equivalents ............................................. $ 28 Cash at beginning of year . (215)

Cash at end of year .................................................................................... $ 243

PE 13–6 (LO3) Computation of Cash from Operating Activities

Cash provided by operating activities is $203, as shown below:

Collections on account .............................................................................. $ 4,286 Payments for inventory .............................................................................. (2,874) Payments for miscellaneous expenses ................................................... (1,031) Payment for interest .. (43)

Payment for taxes (135)

Cash flows from operating activities ........................................................ $ 203 Note: Payments to stockholders as dividends are financing activities and do not appear on the operating activities section of the statement of cash flows.

PE 13–7 (LO3) Solving for Cash from Investing Activities

Cash used in investing activities is ($221,665), as shown below:

Ending cash balance ................................................................................. $ 13,405 Less: Beginning cash balance .................................................................. (12,540) Change in cash account for the year........................................................ $ 865 Cash from (used in) operating activities .................................................. $136,190 Cash from (used in) financing activities .................................................. 86,340 Cash from (used in) investing activities ................................................... (221,665)

Change in cash account for the year $ 865

Chapter 13 505 PE 13–8 (LO4) Using Accounts Receivable to Compute Cash Collections

The company collected $4,557 from its customers, as shown below: Sales on account ................................................................................ $4,526 Add: Beginning accounts receivable .. (512)

Less: Ending accounts receivable (481)

Collections on account ...................................................................... $4,557 Another way to consider this problem is to make a T-account with the information provided and solve for the unknown, as shown below:

To reconcile the accounts receivable account, we can only assume that cash col-lections of $4,557 occurred.

PE 13–9 (LO4) Identifying Noncash Flow Items and Nonoperating Activity Items

The gain on sale of land ($540) would be subtracted from net income, and depre-ciation expense ($1,785) would be added back to net income when computing cash from operating activities. Gain on sale of land relates to investing activities (not operating activities), and depreciation expense is a noncash item.

PE 13–10 (LO4) Using Inventory and Accounts Payable to Compute Cash Paid for Inventory

To solve this problem, consider the following four T-accounts:

506Chapter 13 PE 13–10 (LO4) (Concluded)

1Cost of inventory sold during the period.

2Inventory purchased during the period (solved for based on the beginning and ending Inventory balances and the cost of goods sold).

3Cash paid for inventory during the period (solved for based on the beginning and ending Accounts Payable balances and the inventory purchased during the pe-riod).

Alternatively, one can compute the amount of cash paid for inventory ($36,573) by analyzing the change in the Inventory and Accounts Payable balances, as follows:

Income Cash Flows

Statement Adjustments from Operations Cost of goods sold $(36,843) +128 (decrease in inventory) $(36,573)

+142 (increase in accounts

payable)

PE 13–11 (LO4) Using Taxes Payable to Compute Cash Paid for Taxes

Cash paid for taxes is $3,425, as shown below:

Income Cash Flows

Statement Adjustments from Operations Income tax expense $(3,464) +39 (increase in taxes payable) $(3,425) Another way to consider this problem is to make a T-account with the information provided and solve for the unknown, as shown below:

Chapter 13 507 PE 13–12 (LO4) Indirect Method

Operating Activities:

Net income ...................................................................... $ 554 Add: Depreciation expense ....................................... $4,503

Loss on sale of land .......................................... 1,030

Increase in accounts payable (145)

Decrease in prepaid expenses (130)

Increase in taxes payable (14)

Less: Increase in accounts receivable (340)

Increase in inventory (103)

Decrease in interest payable ............................ (24) 5,355 Cash flows from operations ........................................... $5,909 PE 13–13 (LO4) Direct Method

Operating Activities:

Collections from customers .......................................... $ 32,500 Payments for inventory .................................................. $(21,310)

Payments for miscellaneous expenses ........................ (4,540)

Payments for interest (386)

Payments for taxes ......................................................... (355) (26,591) Cash flows from operating activities ............................ $ 5,909 PE 13–14 (LO4) Computing Cash Paid for Property, Plant, and Equipment

The amount of cash paid for property, plant, and equipment during the year was $34,140, as shown, using the following T-account:

To reconcile the account, we can only assume that cash paid for property, plant, and equipment was $34,140.

508Chapter 13 PE 13–15 (LO4) Computing Gain on Sale of Property, Plant, and Equipment

The realized gain on the sale of equipment during the year is $4,460.

First, we need to compute the book value of the equipment sold during the year. The equipment had a historical cost of $18,700 and accumulated depreciation of $8,890 as computed using the following T-account:

To reconcile the account, we can only assume that the accumulated depreciation related to equipment sold during the year was $8,890.

The book value of the equipment sold was $9,810 ($18,700 – $8,890). So the rea-lized gain on the sale of equipment during the year was $4,460 ($14,270 sales price – $9,810 book value).

PE 13–16 (LO4) Computing Cash from Financing Activities

Financing Activities:

Cash paid to purchase treasury stock ............................................. $(12,000) Cash payments for dividends ........................................................... (2,350) Cash payments to repay long-term debt .......................................... (25,000) Cash flows used in financing activities ........................................... $(39,350) PE 13–17 (LO5) Using Information from the Statement of Cash Flows to Make Decisions

You probably would feel some apprehension about loaning money to this com-pany. The company has experienced positive earnings over the past three years, but it is having a cash flow problem. Cash from operating activities has declined drastically over the past three years, and cash from financing activities has in-creased over the same three years. The company is using external funding to fund its operations. Such a strategy might work in the short run; but if operations do not improve and begin producing cash, the company will not be able to repay its long-term borrowing commitments. An important thing to remember as a po-tential lender is that net income does not repay loans—cash does.

Chapter 13 509

EXERCISES

E 13–18 (LO2) Classification of Cash Flows

Item Classified as Reported under

1. Fees collected for services ......................... I OA

2. Interest paid .................................................. O OA

3. Proceeds from sale of equipment ............... I IA

4. Cash (principal) received from bank on

long-term note .............................................. I FA

5. Purchase of treasury stock for cash .......... O FA

6. Collection of loan made to company

officer ............................................................ I IA

7. Cash dividends paid .................................... O FA

8. Taxes paid..................................................... O OA

9. Depreciation expense .................................. N NOS*

10. Wages paid to employees ........................... O OA

11. Cash paid for inventory purchases ............ O OA

12. Proceeds from sale of common stock ....... I FA

13. Interest received on loan to company

officer ............................................................ I OA

14. Purchase of land by issuing stock ............. N NOS**

15. Utility bill paid ............................................... O OA

*Ignored with direct method; added back to net income with indirect method.

**Disclosed in a separate narrative or schedule if it is a significant transaction.

510Chapter 13 E 13–19 (LO2) Classification of Cash Flows

Not

Reported in

Statement

Reported in Statement of Cash Flows of Cash Transaction Operating Investing Financing Flows a. Collections from

customers .............................. X

b. Depreciation expense ........... X*

c. Wages and salaries paid ...... X

d. Cash dividends paid ............. X

e. Taxes paid ............................. X

f. Utilities paid .......................... X

g. Building purchased in

exchange for stock ............... X** h. Stock of Western Co.

purchased .............................. X

i. Inventory purchased for

cash ........................................ X

j. Interest on Alta’s note to

local bank paid ...................... X

k. Interest received from a

note with a customer ............ X

l. Delivery truck sold at no

gain or loss ............................ X

*Depreciation is ignored when using the direct method.

**This information would be reported in a supplemental note or schedule but not on the statement itself.

Chapter 13 511

E 13–20 (LO2) Transaction Analysis

1. a. Cash ................................................................................. 3,600

Accumulated Depreciation—Equipment ....................... 8,050

Gain on Sale of Equipment (550)

Equipment .................................................................. 11,100 ($3,600 proceeds – $3,050 book value = $550 gain)

b. Equipment ........................................................................ 77,000

Cash ............................................................................ 27,000

Note Payable .............................................................. 50,000

c. Cash ................................................................................. 8,690

Note Receivable ......................................................... 8,200

Interest Revenue (490)

d. Cash ................................................................................. 6,300

Dividend Revenue ...................................................... 6,300

e. Treasury Stock ................................................................ 2,400

Cash ............................................................................ 2,400 2. a. The $3,600 cash receipt is reported under investing activities; with the

indirect method, the $550 gain is subtracted from net income under op-

erating activities.

b. The $27,000 cash payment is reported under investing activities;

$50,000 of the transaction is reported in a note or in a separate sche-

dule since it is a significant noncash transaction.

c. The $490 cash receipt from interest is reported under operating activi-

ties; the $8,200 cash receipt from repayment of a note is reported under

investing activities.

d. The $6,300 cash receipt from dividend revenue is reported under operat-

ing activities.

e. The $2,400 cash payment for treasury stock is reported under financing

activities.

512Chapter 13

E 13–21 (LO3) Transaction Analysis

1. a. Cash ................................................................................. 25,000

Common Stock (1,000 shares $10 par) ................. 10,000

Paid-In Capital in Excess of Par ............................... 15,000

b. Cash ................................................................................. 100,000

Accounts Receivable ................................................. 100,000

c. Dividends Payable........................................................... 50,000

Cash ............................................................................ 50,000

d. Cash ................................................................................. 1,500

Interest Revenue ........................................................ 1,500

e. Insurance Expense ......................................................... 1,200

Cash ............................................................................ 1,200

f. Depreciation Expense ..................................................... 5,000

Accumulated Depreciation ........................................ 5,000

2. a. The $25,000 cash inflow would be classified as a financing activity.

b. The $100,000 cash inflow would be classified as an operating activity.

c. The $50,000 cash outflow would be classified as a financing activity.

d. The $1,500 cash inflow would be classified as an operating activity.

e. The $1,200 cash outflow would be classified as an operating activity.

f. Depreciation is a noncash item. The $5,000 would be added back as an

adjustment to net income under the indirect method and ignored when

using the direct method.

Chapter 13 513 E 13–22 (LO3) Preparing a Simple Cash Flow Statement

Stern Company

Statement of Cash Flows

For the Year Ended December 31, 2008

Cash flows from operating activities:

Collections from customers .......................................... $145,500

Payments for wages and salaries ................................. (60,000)

Payments for inventory .................................................. (64,000)

Payments for other cash operating expenses ............. (10,500)

Payments for taxes ......................................................... (25,000)

Net cash flows used in operating activities ................. $(14,000) Cash flows from investing activities:

Proceeds from sale of equipment ................................. $ 4,750

Proceeds from sale of nontrading securities ............... 17,000

Net cash flows provided by investing activities ........... 21,750 Cash flows from financing activities:

Proceeds from new bank loan ....................................... $ 45,000

Payments of dividends ................................................... (4,000)

Net cash flows provided by financing activities .......... 41,000 Net increase in cash ............................................................ $ 48,750 Beginning cash balance ...................................................... 29,870 Ending cash balance ........................................................... $ 78,620

514Chapter 13

E 13–23 (LO4) Determining Cash Receipts and Payments

1. Cash collected from customers = $445,000

2. Cash paid for wages and salaries = $98,000

3. Cash paid for inventory purchases = $225,500

4. Cash paid for taxes = $38,500

Chapter 13 515 E 13–24 (LO4) Adjustments to Cash Flows from Operations (Indirect Method)

1. Increase in Accounts Receivable .....

2. Decrease in Accounts Payable .........

3. Increase in securities classified

as cash equivalents ...........................

4. Gain on sale of equipment ................

5. Decrease in Inventory ........................

6. Increase in Prepaid Insurance ..........

7. Depreciation .......................................

8. Increase in Wages Payable ...............

9. Decrease in Dividends Payable ........

10. Decrease in Interest Receivable .......

Adjustment to Net Income Subtracted

Subtracted

Does not affect cash flows from op-erations; would be included as cash equivalent

Subtracted (proceeds reported as in-vesting activity)

Added

Subtracted

Added (noncash item)

Added

Does not affect cash flows from op-erations

Added

516 Chapter 13 E 13–25 (LO4) Cash Flows from Operations (Direct Method)

Sales revenue ....................................................... $510,000

+ Beginning accounts receivable .................. 42,000

–Ending accounts receivable ....................... (39,000) Total cash receipts ....................................... $513,000 Cost of goods sold ............................................... $320,000

+ Ending inventory .......................................... 39,000

–Beginning inventory ..................................... (38,000)

Purchases ............................................................. $321,000

+ Beginning accounts payable ....................... 16,000

–Ending accounts payable ............................ (19,000)

Cash paid to suppliers for inventory .................. $318,000

Wages expense .................................................... $ 75,000

+ Beginning wages payable ........................... 10,000

–Ending wages payable ................................. (8,800)

Cash paid to employees ...................................... 76,200

Utilities expense (no adjustments required) ...... 2,500

Rent expense (no adjustments required) ........... 35,400

Insurance expense ............................................... $ 6,900

+ Ending prepaid insurance ........................... 1,800

–Beginning prepaid insurance ...................... (2,200)

Cash paid for insurance ...................................... 6,500 Total cash payments .................................... 438,600 Net cash flows provided by operating activities $ 74,400 The following spreadsheet may be helpful in explaining the adjustments:

Chapter 13 517 E 13–26 (LO4) Cash Flows from Operations (Indirect Method)

Net income .................................................................................................. $70,200 Add (deduct) adjustments to cash basis:

Decrease in accounts receivable ...................................................... 3,000 Increase in inventory ......................................................................... (1,000) Decrease in prepaid insurance (400)

Increase in accounts payable ........................................................... 3,000 Decrease in wages payable ............................................................... (1,200) Net cash flows provided by operating activities ..................................... $74,400 The following spreadsheet may be helpful in explaining the adjustments:

518 Chapter 13 E 13–27 (LO4) Cash Flows Provided by Operations (Direct Method)

Cash flows from operating activities:

Cash receipts from:

Customers .................................................................... $513,0001 Cash payments for:

Inventory ....................................................................... $(311,400)2

Operating expenses ..................................................... (36,500)3

Interest expense ........................................................... (3,500) (351,400) Net cash flows provided by operating activities ............... $161,600 1Sales revenue ...................................................................... $ 500,000

+ Beginning accounts receivable .................................. 43,000

–Ending accounts receivable ........................................ (30,000)

Cash collected from customers ........................................ $ 513,000

2Cost of goods sold ............................................................. $ 300,000

+ Ending inventory .......................................................... 50,000

–Beginning inventory ..................................................... (42,000)

Purchases ............................................................................ $ 308,000

+ Beginning accounts payable ....................................... 59,400

–Ending accounts payable ............................................ (56,000)

Cash paid for inventory ...................................................... $ 311,400

3Sales revenue ...................................................................... $ 500,000

Cost of goods sold ............................................................. 300,000

Gross margin ...................................................................... $ 200,000

Less expenses .................................................................... 110,000

Net income .......................................................................... $ 90,000

Expenses ............................................................................. $ 110,000

Less noncash items:

Depreciation ................................................................. (60,000)

Amortization ................................................................. (10,000)

Cash expenses ............................................................. $ 40,000

Less interest expense .................................................. (3,500)

Cash operating expenses .................................................. $ 36,500

The following spreadsheet may be helpful in explaining the adjustments:

Chapter 13 519 E 13–28 (LO4) Cash Flows Provided by Operations (Indirect Method)

Cash flows from operating activities:

Net income .......................................................................................... $ 90,000 Add (deduct) adjustments to cash basis:

Depreciation ....................................................................................... 60,000 Amortization ....................................................................................... 10,000 Decrease in accounts receivable ...................................................... 13,000 Increase in inventory ......................................................................... (8,000) Decrease in accounts payable .......................................................... (3,400) Net cash flows provided by operating activities ..................................... $161,600 The following spreadsheet may be helpful in explaining the adjustments:

520 Chapter 13 E 13–29 (LO4) Cash Flows Provided by Operations (Direct Method)

Cash flows from operating activities:

Cash receipts from:

Customers .................................................................... $895,0001 Cash payments for:

Inventory ....................................................................... $(734,200)2

Operating expenses ..................................................... (58,500)3

Interest expense ........................................................... (7,400)

Utilities expense ........................................................... (4,100) (804,200) Net cash flows provided by operating activities ............... $ 90,800 1Sales revenue ...................................................................... $ 900,000

+ Beginning accounts receivable .................................. 46,000

–Ending accounts receivable ........................................ (51,000)

Cash receipts from customers .......................................... $ 895,000

2Cost of goods sold ............................................................. $ 720,000

+ Ending inventory .......................................................... 83,100

–Beginning inventory ..................................................... (72,400)

Purchases ............................................................................ $ 730,700

+ Beginning accounts payable ....................................... 68,700

–Ending accounts payable ............................................ (65,200)

Cash paid to suppliers for inventory ................................. $ 734,200

3Sales revenue ...................................................................... $ 900,000

Cost of goods sold ............................................................. 720,000

Gross margin ...................................................................... $ 180,000

Less operating expenses ................................................... (120,000)

Net income .......................................................................... $ 60,000

Operating expenses ........................................................... $ 120,000

Less noncash items:

Depreciation ................................................................. (50,000)

Cash expenses ............................................................. $ 70,000

Less interest expense .................................................. (7,400)

Less utilities expense .................................................. (4,100)

Cash operating expenses .................................................. $ 58,500